SunEdison May Be Biggest Renewable Debacle With Least Impact

Source: By Joe Ryan, Bloomberg • Posted: Wednesday, April 6, 2016

The collapse of SunEdison Inc. may be among the most resounding single downfalls in the history of solar. Yet the impact on the clean energy industry could be little more than a hiccup.

The aggressive expansions and crushing debt load that pushed the Maryland Heights, Missouri, company to the brink of bankruptcy as it lost $9.2 billion in equity in nine months are not emblematic of the industry at large, according to clean energy analysts and executives interviewed at the Bloomberg New Energy Finance summit in New York, which continues Tuesday. Rather, they said, the solar and wind industries remain on sound footing, poised to grow briskly in the years ahead.

Clean energy is a young and fragmented industry, with legions of companies perpetually popping up and flaring out. SunEdison’s rise and fall may be a footnote in the annals of clean-energy collapses, resulting in less lasting damage than the crashes of Suntech Power Holdings Co. and Solyndra LLC.

“It doesn’t change anything,” said Francesco Venturini, chief executive officer of Enel Green Power SpA, the renewables wing of Italy’s biggest utility and a competitor of SunEdison. “Everybody knew they were going down the wrong path. It was a great team underneath but badly managed up top.”

SunEdison’s Debt Burden Grows

Shares of SunEdison, which traded as high as $33.40 in July, were as low as 19.5 cents on Monday. In New York trading on Tuesday, they rose as much as 85 percent to 39 cents, the biggest jump since 2001.

SunEdison’s downfall began with a buying binge as the company scooped up assets on every continent except Antarctica, amassing $11.7 billion in debt by Sept. 30. The pace of acquisitions accelerated in the middle of 2015 and peaked in July with a proposed $2.2 billion acquisition of Utah rooftop solar company Vivint Solar Inc.

Investors questioned the Vivint deal from the start because of the price and the sort of assets it would bring to the group. The deal was later renegotiated down to $1.9 billion, then scrapped altogether shortly after SunEdison disclosed on Feb. 29 that it would postpone the filing of its 2015 annual report.

On Thursday, the developer disclosed that it had received a subpoena from the U.S. Department of Justice and a similar inquiry from the U.S. Securities and Exchange Commission over the failed Vivint deal. It is also being sued by Vivint. SunEdison shares have dropped 99 percent since the Vivint deal was announced, closing Monday at 21 cents.

“This is about a grown-up failure,” said Michael Morosi, an analyst for Avondale Partners LLC of Nashville. “It’s technology that was ready, and ready to be scaled, but it went too fast.”

SunEdison officials didn’t immediately respond to a request for comment.

Renewables, meanwhile, continue to expand rapidly. Solar developers installed 56 gigawatts of capacity in 2015. This year, developers are forecast to add as much as 68.2 megawatts more, according to BNEF, and SunEdison’s collapse will not impact those estimate, said Ethan Zindler, head of Americas research for BNEF.

“This doesn’t change our view of the strength of the U.S. renewable energy market,” Zindler said.

To be sure, the industry at large will suffer some collateral damage from SunEdison, executives said. The downfall may deter companies from planning initial public offerings, said Conergy CEO R. Andrew de Pass. And the strategy of raising cash by forming holding companies called yieldcos — a centerpiece of SunEdison’s growth blueprint — to buy and operate solar and wind farms has already fallen out of favor with investors.

Yieldco Questions

Once SunEdison’s dust settles, de Pass and others predicted that yieldcos would see a resurgence. It is unclear, however how the business model will develop, Morosi said.

“Nothing has fundamentally changed to the attractive thesis of solar, globally as a result of SunEdison,” de Pass said during at interview a the BNEF summit. “People will have to remember that — even through it may be one of the largest non-financial bankruptcies in U.S. history.”

Solyndra’s Legacy

Past blowups left the renewables industry with bigger blemishes. Solyndra’s bankruptcy in 2011, after it was awarded $535 million in U.S. government loan guarantees, made it a lightning rod for criticism by politicians against support extended to the industry. Suntech’s default in 2013 dried up investor interest in China’s solar manufacturers, which a decade ago raised more than $5 billion from Wall Street to fund factory expansions.

“The politics of Solyndra overwhelmed the real impact of Solyndra,” Mike Garland, CEO of Pattern Energy Group Inc., said in an interview.

For Jim Hughes, the CEO of First Solar Inc., the biggest U.S. solar panel maker, now is “as close as you get” to the best time to invest in renewables, SunEdison’s problems notwithstanding.

“Everytime we reduce costs, we stimulate demand,” Hughes said. “We certainly don’t believe we are close to the end of the cost reduction cycle.”